Dairy farmers are calling for WA consumers to show their support for the local industry in the face of what they see as inevitable price rises for branded milk and other products.
WAFarmers dairy section president Phil Depiazzi said milk supply had fallen in WA on the back of poor returns, which discouraged investment and pushed many out of the industry.
Mr Depiazzi said farmers had regained bargaining power as leading processors Brownes, Harvey Fresh and Lion scrambled to shore up supplies.
The milk shortage saw Brownes offer a handful of farmers 55c a litre for their milk, which caused a revolt among existing suppliers stuck on long-term 45c per litre contracts.
Mr Depiazzi said Brownes had fallen behind rival processors on the average farm gate price after Harvey Fresh and Lion moved to up their prices to an average of about 50c a litre this year.
"Any farmer who is out of contract or coming out of contract is in the box seat to get a better price," Mr Depiazzi said.
"The supply-demand situation here where farmers supply the domestic market is not unlike northern Queensland where we understand Lion is paying in the mid-to-high 50c range."
WAFarmers expects processors to pass on the increase in farm gate prices to consumers.
"We think processors will need to try to get more out of the retail market. We hope it doesn't have too much impact because the public is sympathetic to farmers and concerned about the origin of their food," Mr Depiazzi said.
Brownes general manager Ben Purcell believes retail prices for branded milk products will need to rise up to 7 per cent.
Mr Purcell said current retail prices were not sustainable. He faced irate farmers at two meetings last week to explain Brownes' decision to offer higher prices to five new suppliers while ruling out a price rise for those on existing contracts.
Major supplier Brad Boley is refusing to rule out a legal challenge to the contracts and said he hoped private equity fund Archer Capital sold Brownes sooner rather than later.
Industry experts believe it is a matter of time before Brownes is officially on the market.
Fonterra, which retained ownership of Brownes' site in Balcatta as part of the sale of the business to Archer Capital in 2011, recently sold the property to Stockland for $53.5 million. Many wrongly assumed the proceeds of the sale would go to Brownes, which retains a 20-year lease.
Lion has also faced problems in WA, slashing its workforce by more than a third this month after losing the Woolworths home brand contract to Brownes.
A spokeswoman for Lion said the company was committed to building its brands in WA despite speculation about the future of its ageing processing plant, which sits on valuable land in Bentley.
She said losing the Woolworths contract meant Lion would no longer need to truck in about 24 million litres of milk a year from South Australia to boost supply.
Italian dairy giant Parmalat purchased Harvey Fresh for $120 million in April and is trying to secure more milk as it settles into running the business.
The most recent financial records for Harvey Fresh, for the year ending June 30, 2013, show a big jump in sales revenue to almost $173 million was offset by rising costs which forced it into a $3 million loss.
Ironically, Coles and Woolworths, whose $1-a-litre pricing policy on home-brand milk is blamed for many of the problems in the industry, are now enlisting farmers to launch brands for the premium end of the market.
Woolworths is well advanced with plans to launch a premium brand in WA and has secured milk supply. Coles is expected to match the move.